SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1999 Commission File Number: O-14741
- -------------------------------- -------------------------------
ASA International Ltd.
-----------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 02-0398205
- -------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Speen Street, Framingham, MA 01701
- ---------------------------------------- -----------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 508-626-2727
------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:__
As of June 30, 1999, there were 3,143,962 shares of Common Stock of the
Registrant outstanding.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,937,071 $ 4,262,438
Receivables - net 5,879,051 5,187,076
Computer hardware held for resale 209,517 202,487
Other current assets 3,042,648 502,126
Net assets of CommercialWare division - 1,312,962
----------- -----------
TOTAL CURRENT ASSETS 13,068,287 11,467,089
PROPERTY AND EQUIPMENT (less
depreciation of $4,132,611 and
$3,889,322, respectively) 5,011,254 4,842,514
SOFTWARE (less amortization of
$6,823,562 and $6,480,122
respectively) 1,506,880 1,908,723
COST EXCEEDING NET ASSETS ACQUIRED
(less amortization of $1,391,285
and $1,369,222, respectively) 38,216 60,278
OTHER ASSETS 2,981,508 1,453,751
----------- -----------
$22,606,145 $19,732,355
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 1,072,193 $ 1,174,792
Accrued expenses 2,840,843 2,735,837
Other current liabilities 3,813,724 2,208,021
------------ -----------
TOTAL CURRENT LIABILITIES 7,726,760 6,118,650
LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES 4,007,043 4,067,797
LONG-TERM LIABILITIES - OTHER 290,988 304,769
DEFERRED TAXES 432,000 432,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock 43,793 43,768
Additional paid-in capital 7,796,042 7,793,774
Retained earnings 4,821,656 2,964,622
Accumulated other comprehensive
income (loss) (10,003) 17,026
------------ -----------
12,651,488 10,819,190
Less: treasury stock, at cost 2,502,134 2,010,051
------------ -----------
10,149,354 8,809,139
------------ -----------
$22,606,145 $19,732,355
============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------
1999 1998
----------------------------
(Unaudited)
REVENUE
<S> <C> <C>
Services $ 4,095,709 $ 4,560,532
Product licenses 1,490,971 1,727,710
Computer and add-on hardware 1,409,392 1,232,746
------------ ------------
NET REVENUE 6,996,072 7,520,988
COST OF REVENUE
Services 2,370,822 2,813,833
Product licenses and development 1,194,649 1,126,154
Computer and add-on hardware 1,018,343 880,009
------------ ------------
TOTAL COST OF REVENUE 4,583,814 4,819,996
EXPENSES
Marketing and sales 1,059,531 1,318,256
General and administrative 1,002,212 958,116
Amortization of goodwill 11,032 55,969
------------ ------------
TOTAL EXPENSES 2,072,775 2,332,341
EARNINGS FROM OPERATIONS 339,483 368,651
INTEREST INCOME (EXPENSE) 20,174 (69,842)
------------ ------------
EARNINGS BEFORE INCOME TAXES 359,657 298,809
INCOME TAXES 216,000 179,000
------------ ------------
NET EARNINGS $ 143,657 $ 119,809
============ ============
EARNINGS PER COMMON SHARE:
BASIC $.04 $.03
============ ============
DILUTED $.04 $.03
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1999 1998
----------------------------
(Unaudited)
REVENUE
<S> <C> <C>
Services $ 7,844,033 $ 8,667,889
Product licenses 3,076,131 3,527,272
Computer and add-on hardware 2,482,771 2,971,383
------------ ------------
NET REVENUE 13,402,935 15,166,544
COST OF REVENUE
Services 4,556,698 5,278,154
Product licenses and development 2,074,990 2,212,066
Computer and add-on hardware 1,833,051 2,564,802
------------ ------------
TOTAL COST OF REVENUE 8,464,739 10,055,022
EXPENSES
Marketing and sales 2,202,997 2,635,325
General and administrative 1,832,273 1,804,894
Amortization of goodwill 22,063 107,757
------------ ------------
TOTAL EXPENSES 4,057,333 4,547,976
EARNINGS FROM OPERATIONS 880,863 563,546
INTEREST EXPENSE - NET (47,934) (140,338)
OTHER INCOME - NET 3,822,105 -
------------ ------------
EARNINGS BEFORE INCOME TAXES 4,655,034 423,208
INCOME TAXES 2,798,000 254,000
------------ ------------
NET EARNINGS $ 1,857,034 $ 169,208
============ ============
EARNINGS PER COMMON SHARE:
BASIC $.57 $.05
============ ============
DILUTED $.53 $.05
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET INCOME $143,657 $119,809 $1,857,034 $169,208
OTHER COMPREHENSIVE INCOME
NET OF INCOME TAX:
Foreign currency translation (8,558) 5,866 (10,003) (1,703)
--------- -------- ----------- ---------
COMPREHENSIVE INCOME $135,099 $125,675 $1,847,031 $167,505
========= ======== =========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1999 1998
----------------------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET EARNINGS $ 1,857,034 $ 169,208
------------ ------------
ADJUSTMENTS TO RECONCILE NET EARNINGS
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION AND AMORTIZATION 607,670 1,001,997
CHANGES IN ASSETS AND LIABILITIES 416,168 (254,797)
GAIN ON SALE OF PRODUCT LINE (3,824,420) -
------------ ------------
TOTAL ADJUSTMENTS (2,800,582) 747,200
------------ ------------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES (943,548) 916,408
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY AND EQUIPMENT (412,196) (527,193)
REDUCTION (INCREASE) IN SALES-TYPE LEASES (12,890) (17,846)
CASH RECEIVED IN DIVESTITURE 3,437,382 -
CASH RECEIVED IN ACQUISITION,
NET OF CASH PAID - 98,275
OTHER ASSETS (1,841,085) (10,589)
------------ ------------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES 1,171,211 (457,353)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
INCREASE (DECREASE) IN LONG-TERM DEBT (84,623) (211,312)
INCREASE (DECREASE) IN LONG-TERM
LIABILITIES (13,781) 268,442
CASH PAID IN LIEU OF STOCK (140,000)
PURCHASE OF TREASURY STOCK (492,083) (53,823)
ISSUANCE OF COMMON STOCK 2,294 209
------------ ------------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (588,193) (136,484)
------------ ------------
EFFECT OF EXCHANGE RATES ON CASH &
CASH EQUIVALENTS 35,163 (1,525)
------------ ------------
CASH AND CASH EQUIVALENTS:
NET INCREASE (DECREASE) (325,367) 321,046
BALANCE, BEGINNING OF YEAR 4,262,438 1,282,817
------------ ------------
BALANCE, END OF PERIOD $ 3,937,071 $ 1,603,863
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
- ------------------------------
As permitted by the rules of the Securities and Exchange Commission applicable
to quarterly reports on Form 10-Q, these notes are condensed and do not contain
all disclosures required by generally accepted accounting principles. Reference
should be made to the financial statements and related notes included in the
Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying financial statements reflect all
adjustments which were of a normal recurring nature necessary for a fair
presentation of the Company's results of operations for the three months and six
months ended June 30, 1999 and June 30, 1998, respectively.
The results disclosed in the Condensed Consolidated Statement of Operations for
the three months and six months ended June 30, 1999 are not necessarily
indicative of the results expected for the full year.
Note 2 - Divestiture
- --------------------
In March 1999, the Company exchanged substantially all of the assets and
liabilities of its CommercialWare Division (CWI) for approximately $4,000,000 in
cash, a $1,700,000 three year note at 7.06%, approximately a 10% interest in a
newly formed entity, CommercialWare, Inc., and a $500,000 Junior Note. The
Company will not reflect the $500,000 Junior Note as part of the proceeds due to
the uncertainty of the ultimate collection of this Note. The pretax gain on the
sale of CWI was approximately $3,824,000.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Earnings per Share
- ---------------------------
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---- ---- ---- ----
NUMERATOR:
NET INCOME $ 143,657 $ 119,809 $1,857,034 $ 169,208
=========== =========== =========== ===========
NUMERATOR FOR DILUTED EARNINGS
PER SHARE - INCOME AVAILABLE
TO COMMON SHAREHOLDERS $ 143,657 $ 119,809 $1,857,034 $ 169,208
=========== =========== =========== ===========
DENOMINATOR:
DENOMINATOR FOR BASIC EARNINGS
PER SHARE - WEIGHTED AVERAGE
SHARES 3,264,273 3,548,740 3,282,594 3,509,221
EFFECT OF DILUTIVE SECURITIES:
EMPLOYEE STOCK OPTIONS 224,958 171,378 211,639 172,396
----------- ----------- ----------- -----------
DILUTIVE POTENTIAL COMMON SHARES
DENOMINATOR FOR DILUTED
EARNINGS PER SHARE -
ADJUSTED WEIGHTED
AVERAGE SHARES AND
ASSUMED CONVERSIONS 3,489,231 3,720,118 3,494,233 3,681,617
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE $.04 $.03 $.57 $.05
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $.04 $.03 $.53 $.05
=========== =========== =========== ===========
</TABLE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Investments
- --------------------
Included in the other assets at June 30, 1999 are the Company's holdings in a
mutual fund which invests in senior secured floating rate loans. The Company
accounts for this investment as available-for-sale in accordance with Statement
of Financial Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for
Certain Investment in Debt and Equity Securities," which requires that debt and
marketable equity securities be classified as trading, available-for-sale, or
held-to-maturity. Available-for-sale securities are reported in the balance
sheet at fair value with unrealized gains or losses included in a separate
component of stockholders' equity.
At June 30, 1999, the fair market value of this investment of $2,008,000
approximated its cost.
Note 5 - Subsequent Event
- -------------------------
In August, 1999, the Company granted to InterPro Expense Systems, Inc., a
Delaware corporation ("InterPro") and ASA InterPro SmartTime LLC, a Delaware
limited liability company (the "LLC"), an option to purchase the Company's
SmartTime product line. Pursuant to an Option Agreement ("the Agreement"), the
Company transferred the assets and liabilities of its SmartTime product line to
the newly formed LLC, of which the Company is the sole member and InterPro is
the manager.
The Agreement provides that InterPro has the option to purchase the SmartTime
product line from the LLC at anytime from August 1, 2000 through August 31, 2000
(the "Option Period"), or at such earlier date as agreed to by the parties, for
an aggregate purchase price of $7,020,000, less any option fee paid to date (the
"Purchase Price"). The terms and conditions of the acquisition are set forth in
an Asset Purchase Agreement dated as of August 2, 1999 (the "Purchase
Agreement"). The Purchase Agreement provides that the sale will occur, if at
all, within two days after exercise of the option and the satisfaction of
certain other conditions as specified in the Purchase Agreement. During the
Option Period, InterPro will employ the employees of the SmartTime product line
and will bear the risk of its financial performance.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
InterPro paid an initial option fee in the amount of $1,660,000 upon execution
of the Agreement and is required to pay a second option fee on August 1, 2000 in
the amount of $540,000, unless InterPro exercises the option prior to such date.
The option fees are non-refundable to InterPro in the event that InterPro does
not exercise the option to purchase the SmartTime product line, as to which
there can be no assurance. Pursuant to the Agreement, InterPro has loaned to the
Company the sum of $3,200,000 (with respect to which the Company has prepaid
$160,000 in interest). In addition, the LLC has agreed to loan InterPro an
amount equal to the net cash of the LLC available after collection of the LLC's
accounts receivable and payment of the LLC's accounts payable.
InterPro has purchased exclusive licenses to use the customer intangibles and
intellectual property of the SmartTime product line during the Option Period for
$300,000 and $500,000, respectively. In the event that InterPro does not
exercise the option to purchase the SmartTime product line prior to the
expiration of the Option Period, InterPro's rights under the above-mentioned
license agreements would terminate and the Company, through the LLC, would
retain ownership of these assets.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
In addition to the historical information contained herein, the discussions
contained in this document include forward-looking statements. By way of
example, the discussions include statements regarding revenues, gross margins,
future marketing efforts, potential acquisitions, and Year 2000 implications.
Such statements involve a number of risks and uncertainties, including but not
limited to those discussed below and those identified from time to time in the
Company's filings with the Securities and Exchange Commission. These risks and
uncertainties could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements. The Company assumes no obligation to update these
forward-looking statements to reflect events or circumstances arising after the
date hereof.
Results of Operations
Second Quarter of 1999
compared to
Second Quarter of 1998
(000's omitted)
--------------- --------------------
Revenue Increase/(Decrease)
--------------- --------------------
1999 1998 Amount Percentage
---- ---- ------ ----------
Services $ 4,096 $ 4,560 $ (464) (10%)
Product licenses 1,491 1,728 (237) (14%)
Computer and add-on
hardware 1,409 1,233 176 14%
-------- -------- -------
Net revenue $ 6,996 $ 7,521 ($525) (7%)
======== ======== ======= =====
REVENUE
Net revenue. The Company designs and develops proprietary enterprise and
point-solution software for the electronic time and labor recording market, and
for the automotive, legal, and ERP (enterprise resource planning) markets. The
Company's revenues are derived from the licensing of the Company's software
products, from client service and support, and from the sale of third party
computer and add-on hardware. The Company's total revenues decreased by
approximately $525,000, or 7%, for the quarter ended June 30, 1999, compared to
the quarter ended June 30, 1998. One reason for the stated decrease is the
Company's first quarter revenues exclude the revenues for the Company's catalog
direct marketing systems product line, which was sold in March 1999. Revenue
from existing businesses increased by approximately $923,000, or 15%, for the
period, when approximately $1,450,000 in revenue from the Company's catalog
direct marketing systems product line is excluded from the second quarter 1998
results.
Services. Services are comprised of fees generated from training,
consulting, software modifications, and ongoing client support provided under
self-renewing maintenance agreements. Service revenues decreased by
approximately $464,000, or 10%, for the three months ended June 30, 1999,
compared to the three months ended June 30, 1998. Service revenue from existing
businesses increased by approximately $672,000, or 20%, for the period, when
compared to the second quarter of 1998, and the service revenue from the catalog
direct marketing systems product line of approximately $1,137,000 for the 1998
period is excluded.
Product licenses. The Company's software license revenues are derived
primarily from the licensing of the Company's enterprise and point-solution
products. Product license revenues decreased by approximately $237,000, or 14%,
for the second quarter of 1999, compared to the same period in 1998. Product
license revenue from existing businesses decreased by approximately $198,000, or
12%, for the period, when compared to the second quarter of 1998, and the
product license revenue from the catalog direct marketing systems product line
of approximately $39,000 for the 1998 period is excluded. The decrease in
product license revenue results from decreases in revenue from the electronic
time and labor reporting and legal systems product lines, partially offset by an
increase in product license revenues from the tire and ERP product lines.
Computer and add-on hardware. Hardware revenues are derived from the resale
of third-party hardware products to the Company's clients in conjunction with
the licensing of the Company's software. Hardware revenues increased by
approximately $176,000, or 14%, for the three months ended June 30, 1999,
compared to the same period in 1998. Hardware revenue from existing businesses
increased by approximately $449,000, or 47%, when compared to the second quarter
of 1998 and the hardware revenue from the catalog direct marketing systems
product line of approximately $274,000 for the 1998 period is excluded. The
increase in hardware revenues from existing businesses was due primarily to the
increase of hardware unit sales accompanying increased product license sales.
COST OF REVENUE
Services. Cost of services consists of the costs incurred in providing
client training, consulting, and ongoing support as well as other client
service-related expenses. Cost of services decreased by approximately $443,000
for the three months ended June 30, 1999, compared to the second quarter of
1998. The gross margin percentage for services for the second quarter of 1999
increased to approximately 42% from 38% of revenue from services in the second
quarter of 1998. The Company's revenue and margin from services fluctuate from
period to period due to changes in the mix of contracts and projects.
Product licenses and development. Cost of software license revenues
consists of the costs of amortization of capitalized software costs, and the
costs of sublicensing third-party software products. The amount also includes
the expenses associated with the development of new products and the enhancement
of existing products (net of capitalized software costs), which consist
primarily of employee salaries, benefits, and associated overhead costs. Cost of
software license revenues and development increased by approximately $68,000 for
the quarter ended June 30, 1999, compared to the same period in 1998. The change
primarily reflects an increase in product license and development costs for the
ERP and automotive systems product lines partially offset by decreases in these
costs for the electronic time and labor reporting product lines and the
elimination of the costs associated with license revenue and development from
the catalog direct marketing product line sold in March 1999. The cost of
product licenses as a percentage of product license revenue may fluctuate from
period to period due to the mix of sales of third-party software products in
each period contrasted with certain fixed expenses such as the amortization of
capitalized software.
Computer and add-on hardware. Cost of hardware revenues consists primarily
of the costs of third-party hardware products. Cost of hardware revenues
increased by approximately $138,000, or 16%, for the three months ended June 30,
1999, compared to the prior period. The increase in dollar amount for the cost
of hardware revenues for the three months ended June 30, 1999 was due primarily
to increased computer and add-on hardware costs for the electronic time and
labor reporting product lines partially offset by decreases in these costs for
the legal and ERP systems product lines and the costs of hardware revenue
associated with the catalog direct marketing product line sold in March 1999.
The gross margin percentage for hardware sales decreased to 28% for the
three months ended June 30, 1999, from 29%, in the same period in 1998. Margins
on computer and add-on hardware do fluctuate based on the mix of computer and
ancillary hardware products sold. Accordingly, the Company expects hardware
gross margins to fluctuate in the future. The Company continues to direct its
efforts toward building service and license revenues to offset the historical
decline in hardware revenue and margins.
EXPENSES
Marketing and sales. Marketing and sales expenses consist primarily of
employee salaries, benefits, commissions and associated overhead costs, and the
cost of marketing programs such as direct mailings, trade shows, seminars, and
related communication costs. Marketing and sales expenses decreased by $259,000,
or 20%, for the quarter ended June 30, 1999, compared to the second quarter in
1998. The change in marketing and sales expenses primarily reflects reduced
sales and marketing expenses for the electronic labor reporting and legal
systems product lines and the elimination of the marketing and sales expenses of
the catalog direct marketing systems product line sold in March 1999, which were
partially offset by increased marketing and sales expenses from the automotive
and ERP systems product lines.
General and administrative. General and administrative expenses consist
primarily of employee salaries and benefits for administrative, executive, and
finance personnel and associated overhead costs, as well as consulting,
accounting, and legal expenses. General and administrative expenses increased by
approximately $44,000, or 5%, for the three months ended June 30, 1999, compared
to the same period in 1998. The change primarily reflects the elimination of the
expenses related to the catalog direct marketing systems product line, partially
offset by increased general and administrative expenses from the automotive and
legal product lines.
Net earnings for the second quarter of 1999 were approximately $144,000, as
compared to net earnings of approximately $120,000 for the second quarter of
1998. The change results from a decrease in net interest expense of $90,000
partially offset by a decrease in earnings from operations of $29,000 and an
increase in income tax expense of $37,000.
Six Months Ended June 30, 1999
compared to
Six Months Ended June 30, 1998
(000's omitted)
--------------- --------------------
Revenue Increase/(Decrease)
--------------- --------------------
1999 1998 Amount Percentage
---- ---- ------ ----------
Services $ 7,844 $ 8,668 $ (824) (10%)
Product licenses 3,076 3,527 (451) (13%)
Computer and add-on
hardware 2,483 2,971 (488) (16%)
-------- -------- -------- --------
Net revenue $13,403 $15,166 $(1,763) (12%)
======== ======== ======== ========
REVENUE
Net revenue. The Company's total revenues decreased by approximately
$1,763,000, or 12%, for the period when compared to the first six months of
1998. Revenue from existing businesses increased by approximately $1,953,000, or
17% for the period, when approximately $3,714,000 in revenue from the Company's
catalog direct marketing systems product line, which was sold in March 1999, is
excluded.
Services. Service revenues decreased by approximately $824,000, or 10%, for
the six months ended June 30, 1999, compared to the six months ended June 30,
1998. Service revenue from existing businesses increased by approximately
$1,270,000, or 19%, for the period, when compared to the first six months of
1998, and the service revenue from the catalog direct marketing systems product
line of approximately $2,093,000 for the 1998 period is excluded. The change was
due to increases in client requirements for training and consulting services,
and to the increase in support revenues as a result of a larger installed client
base.
Product licenses. Software license revenues decreased by approximately
$451,000, or 13%, for the first six months of 1999, compared to the same period
in 1998. Product license revenue from existing businesses decreased by
approximately $97,000, or 3%, for the period, when compared to the first six
months of 1998, and the product license revenue from the catalog direct
marketing systems product line of approximately $354,000 for the 1998 period is
excluded. The decrease in product license revenue results from decreases in
revenue from the Item 2 electronic time and labor reporting, legal and ERP
product lines, partially offset by an increase in product license revenue from
the tire systems product line.
Computer and add-on hardware. Hardware revenues decreased by approximately
$488,000, or 16%, for the six months ended June 30, 1999, compared to the same
period in 1998. Hardware revenue from existing businesses increased by
approximately $780,000, or 46% for the period, when approximately $1,267,000 in
hardware revenue from the Company's catalog direct marketing systems product
line is excluded. The increase in hardware revenues from existing businesses was
due primarily to the increase of hardware unit sales by the Company's automotive
systems product line.
COST OF REVENUE
Services. Cost of services decreased by approximately $721,000 for the six
months ended June 30, 1999, compared to the first six months of 1998. The gross
margin percentage for services for the six months ended June 30, 1999 increased
to approximately 42% from 39% of revenue from services in the first six months
of 1998. The Company's revenue and margin from services fluctuate from period to
period due to changes in the mix of contracts and projects.
Product licenses and development. Cost of software license revenues and
development decreased by approximately $137,000 for the six months ended June
30, 1999, compared to the same period in 1998. Cost of product license and
development increased by approximately $246,000 or 13% for the period when
compared to the first six months of 1998, and the cost of product licenses and
development from the catalog direct marketing systems product line of
approximately $383,000 for the 1998 period is excluded. The cost of product
licenses as a percentage of product license revenue may fluctuate from period to
period due to the mix of sales of third-party software products in each period
contrasted with certain fixed expenses such as the amortization of capitalized
software.
Computer and add-on hardware. Cost of hardware revenues decreased by
approximately $732,000, or 29%, for the six months ended June 30, 1999, compared
to the prior period. The cost of hardware revenue from existing businesses
increased by approximately $414,000, or 29%, when approximately $1,147,000 in
cost of hardware from the Company's catalog direct marketing systems product
line is excluded from the results of the first six months of 1998. The increase
in dollar amount for the cost of hardware revenues for the six months ended June
30, 1999 was due primarily to increased unit sales of hardware products by the
Company's automotive systems product line.
The gross margin percentage for hardware sales increased to 26% for the six
months ended June 30, 1999, from 14% in the same period in 1998. Margins on
computer and add-on hardware can fluctuate based on the mix of computer and
ancillary hardware products sold. Accordingly, the Company expects hardware
gross margins to continue to fluctuate in the future. The Company continues to
direct its efforts toward building service and license revenues to offset the
historical decline in hardware revenue and margins.
EXPENSES
Marketing and sales. Marketing and sales expenses decreased by $432,000, or
16%, for the six months ended June 30, 1999, compared to the first six months in
1998. The change in marketing and sales expenses reflects the elimination of the
marketing and sales expenses of the catalog direct marketing systems product
line sold in March, 1999 and a reduction in these expenses by the electronic
time recording product line. These reductions were partially offset by increased
sales and marketing expenses from the automotive and ERP systems product lines.
General and administrative. General and administrative expenses increased
by approximately $27,000, or 2%, for the six months ended June 30, 1999,
compared to the same period in 1998. The change primarily reflects the
elimination of the expenses related to the catalog direct marketing systems
product line, partially offset by increased general and administrative expenses
from the automotive and legal product lines.
Net earnings for the six months ended June 30, 1999 were approximately
$1,857,000, as compared to net earnings of approximately $169,000 for the first
six months of 1998. The change results from an increase in earnings from
operations of approximately $317,000, the gain on the sale of the catalog direct
marketing systems product line of approximately $3,822,000 and a reduction in
net interest expense of approximately $93,000, partially offset by an increase
in income tax expense of approximately $2,544,000.
Liquidity and Capital Resources
The Company had total cash, cash equivalents and investments available for sale
at June 30, 1999 of approximately $5,945,000, an increase of approximately
$1,683,000 from December 31, 1998. The Company and its subsidiaries had a
maximum line of credit totaling $1,500,000, which expired in June. The Company
expects to renew the line under approximately the same terms of which no
assurance can be given.
In March 1999, the Company sold substantially all of the assets of its catalog
direct marketing systems product line to CommercialWare, Inc., a Delaware
Corporation (the Purchaser). Under the terms of the sale, the Company
transferred to the Purchaser certain of the liabilities of the product line. The
Company received (i) cash in the amount of $4,000,000, (ii) a promissory note
due in three years in the amount of $1,700,000, (iii) a junior promissory note
in the amount of $500,000, (iv) 30,000 shares of the Purchaser's common stock,
par value $.01 per share, and (v) one (1) share of Purchaser's Series A
Preferred Stock.
In August 1999, the Company granted to InterPro Expense Systems, Inc., a
Delaware corporation ("InterPro") an option to purchase the Company's SmartTime
product line. As per the terms of the Option Agreement, the Company transferred
the assets and liabilities of its SmartTime product line to a newly formed LLC,
of which the Company is the sole member and InterPro is the manager.
The terms of the Option Agreement provide that InterPro has the option to
purchase the SmartTime product line from the LLC at anytime from August 1, 2000
through August 31, 2000 (the "Option Period"), or at such earlier date as agreed
to by the parties, for an aggregate purchase price of $7,020,000, less any
option fee paid to date (the "Purchase Price").
InterPro paid an initial option fee in the amount of $1,660,000 upon execution
of the Option Agreement and is required to pay a second option fee on August 1,
2000 in the amount of $540,000, unless InterPro exercises the option prior to
such date. The option fees are non-refundable to InterPro in the event that
InterPro does not exercise the option to purchase the SmartTime product line, as
to which there can be no assurance. Also under the terms of the Option
Agreement, InterPro has loaned to the Company the sum of $3,200,000 (with
respect to which the Company has prepaid $160,000 in interest). In addition, the
LLC has agreed to loan InterPro an amount equal to the net cash of the LLC
available after collection of the LLC's accounts receivable and payment of the
LLC's accounts payable.
In addition, InterPro has purchased exclusive licenses to use the customer
intangibles and intellectual property of the SmartTime product line during the
Option Period for $300,000 and $500,000, respectively. In the event that
InterPro does not exercise the option to purchase the
<PAGE>
Liquidity and Capital Resources
SmartTime product line prior to the expiration of the Option Period, InterPro's
rights under the above-mentioned license agreements would terminate and the
Company, through the LLC, would retain ownership of these assets.
The Company expects to continue to pursue strategic acquisitions. These
acquisitions have been, and are expected to continue to be, financed in a number
of ways. Management believes, subject to the conditions of the financial
markets, that it should be able to continue its program of acquisitions.
The Company has experienced significant fluctuations in its quarterly operating
results and anticipates such fluctuations in the future. Quarterly revenues and
operating results depend on the volume and timing of orders received during the
quarter which are difficult to forecast. Large orders for the Company's products
often have a lengthy sales cycle while the customer evaluates and receives
approvals for the purchase of the products. It may be difficult to accurately
predict the sales cycle of any large order. If one or more large orders fail to
close as forecasted in a fiscal quarter, the Company's revenues and operating
results could be materially adversely affected. In addition, the Company
typically receives a substantial portion of its product orders in the last month
of the quarter. Orders are shipped as received and, as a result, the Company
often has little or no backlog except for support and service revenue. The
Company acknowledges the potential adverse impact that such fluctuations and
general economic uncertainty could have on its ability to maintain liquidity and
raise additional capital.
The Company's future financial performance is also dependent in large part on
the successful development, introduction, and customer acceptance of new and
enhanced versions of its software products. Due to the rapid change in vendor
hardware platforms, operating systems, and updated versions, the complexity and
expense of developing, testing, and maintaining the Company's products has
increased. The Company intends, as it has in the past, to fund this development
primarily from its cash from operations and bank debt. There can be no assurance
that these efforts will be successful or result in significant product
enhancements.
Subject to the foregoing, the Company believes that based on the level of
operating revenue, cash on hand, and available bank debt, it has sufficient
capital to finance its ongoing business.
Year 2000 Implications
The Company has continued to evaluate the potential impact of the Year 2000
issue, which concerns the inability of some computer hardware and software
programs to properly recognize and process date sensitive information related to
the 21st century. Certain of the Company's internal use software and existing
products are currently Year 2000 compliant, while others have required
modification so that the software will function properly with respect to dates
in the Year 2000 and thereafter. In addition, the Company has been, and is
currently providing customers upgrade alternatives to Year 2000 non-compliant
versions of the Company's products. The total cost of compliance measures is not
estimated to be material and is being funded through operating cash flows and
expensed as incurred. The Company presently believes that due to its use of
currently Year 2000 compliant systems along with the modification of
non-compliant software and products, the Year 2000 issue will not pose
significant operational problems for the Company or its customers. Although the
Company believes its systems and software are or will be Year 2000 compliant in
all material respects, there can be no assurance that the Company's current
systems and products do not contain undetected errors or defects with Year 2000
date functions that may result in material costs to the Company.
The Company has also contacted certain of its significant vendors to determine
the extent to which the Company's products are vulnerable to those third
parties' failure to correct their own Year 2000 issues. Generally, computer
systems and software provided by third parties and included in the Company's
systems are developed by leading suppliers with Year 2000 programs in process.
There can be no guarantee that the systems and software of other companies on
which the Company's systems rely, will be timely or properly converted. Failure
of these third party products to operate properly with regard to the Year 2000
and thereafter could require the Company to incur unanticipated expenses to
remedy any problems, which could have a material adverse effect on the Company's
business, results of operations, and financial condition.
Item 3. Quantitative And Qualitative Disclosure About Market Risk
---------------------------------------------------------
Risk. The Company is exposed to the impact of interest rate changes and
foreign currency fluctuations.
Interest Rate Risk. The Company's exposure to market rate risk for
changes in interest rates relates primarily to the Company's cash equivalent
investments. The Company has not used derivative financial instruments. The
Company invests its excess cash in short-term floating rate instruments and
senior secured floating rate loan funds, which carry a degree of interest rate
risk. These instruments may produce less income than expected if interest rates
fall.
Foreign Currency Risk. International revenues from the Company's foreign
subsidiary and other foreign sources were approximately 15% of all revenues.
International sales are made primarily from the Company's foreign subsidiary in
Italy and are denominated in the local currency. Accordingly, the foreign
subsidiary uses the local currency as its local currency. The Company's
international business is subject to risk typical of an international business,
including, but not limited to, differing economic conditions, changes in
political climate, differing tax structures, other regulations and restrictions,
and foreign exchange rate volatility. Accordingly, the Company's future results
could be materially adversely impacted by changes in these or other factors. The
Company is exposed to foreign currency exchange rate fluctuations as the
financial results of its foreign subsidiary are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall profitability. The effect of
foreign exchange rate fluctuations on the company year-to-date in 1999 was not
material.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
On May 14, 1999, the Company held an Annual Meeting of Stockholders (the "Annual
Meeting") to vote on the following proposals:
1. To elect six (6) members to the Board of Directors. Nominees for
Director were: (a) Alfred C. Angelone; (b) Alan J. Klitzner; (c) William A.
Kulok; (d) James P. O'Halloran; (e) Gordon J. Rollert; and (f) Robert L. Voelk;
and
2. To ratify and confirm the appointment of BDO Seidman, LLP, as the
independent accountants for the Company for the fiscal year ending December 31,
1999 ("Proposal No. 2").
Of the 4,378,555 shares of the Company's Common Stock of record as of March 24,
1999 able to be voted at the Annual Meeting, a total of approximately 3,389,363
shares were voted, or approximately 77.41% of the Company's issued and
outstanding shares of Common Stock entitled to vote on these matters. Proposals
No. 1 and No. 2 were adopted with the vote totals as follows:
SHARES
SHARES VOTING
PROPOSAL VOTING FOR AGAINST WITHHOLD
- -------- ---------- ------- ---------
PROPOSAL NO. 1
--------------
ALFRED C. ANGELONE 3,371,187 2,809 15,367
ALAN J. KLITZNER 3,371,218 3,129 15,016
(C) WILLIAM A. KULOK 3,372,058 2,429 14,876
(D) JAMES P. O'HALLORAN 3,372,358 2,229 14,776
(E) GORDON J. ROLLERT 3,372,458 2,129 14,776
(F) ROBERT L. VOELK 3,372,083 2,129 15,151
PROPOSAL NO. 2
--------------
3,358,342 21,421 9,600
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits -
The following exhibits are filed with this report:
27 Financial Data Schedule.
(b) Reports on Form 8-K - none.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASA International Ltd.
------------------------------
(Registrant)
8/13/99 /s/ Alfred C. Angelone
- ------------ ------------------------------
(Date) (Signature)
Alfred C. Angelone
Chief Executive Officer
8/13/99 /s/ Terrence C. McCarthy
- ------------ ------------------------------
(Date) (Signature)
Terrence C. McCarthy
Vice President and Treasurer
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1999, CONDENSED CONSOLIDATED
INCOME STATEMENT FOR SIX MONTHS ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B)
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<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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